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Employers and employees no longer would be able to claim some deductions and income
tax rates would range from 10 percent to 37 percent across seven brackets for individuals,
a draft bill reconciling the House and Senate tax bills in a conference report released
Dec. 17 said.

The reconciliation bill’s seven tax brackets have rates of 10, 12, 22, 24, 32, 35,
and 37 percent, compared with the U.S. federal tax brackets currently in effect with
rates of 10, 15, 25, 28, 33, 35, and 39.6 percent.

Effective for 2018, U.S. federal individual income tax rates and brackets for single
filers under the budget would be:

10 percent for annual income up to $9,525, compared with the current rate of 10 percent
for annual income up to $9,325;

12 percent for annual income more than $9,525 up to $38,700, compared with the current
rate of 15 percent for annual income of $9,325 up to $37,950;

22 percent for annual income more than $38,700 up to $82,500, compared with the current
rate of 25 percent for annual income of $37,950 up to $91,900;

24 percent for annual income more than $82,500 up to $157,500, compared with the
current rate of 28 percent for annual income of $91,900 up to $191,650;

32 percent for annual income more than $157,500 up to $200,000, compared with the
current rate of 33 percent for annual income of $191,650 up to $416,700;

35 percent for annual income more than $200,000 up to $500,000, compared with the
current rate of 35 percent for annual income of $416,700 up to $418,400; and

37 percent for annual income more than $500,000, compared with the current rate of
39.6 percent for annual income more than $418,400.

The income ranges for payroll withholding that are currently in effect slightly differ
from the aforementioned ranges and are available in Publication 15 (Circular E).

The U.S. federal income tax rates and brackets in the bill would take effect Jan.
1, 2018. The new individual rates and brackets would be set to expire at the end of
2025, unless the U.S. Congress chooses to extend them.

The U.S. Treasury Secretary would have authority to implement the new income tax rates
and brackets for wage withholding purposes later in 2018.

The Internal Revenue Service plans to issue guidance on income tax withholding in
January, if the bill is signed into law. President Trump has said he would sign the
legislation after passage by Congress. Taxpayers could see the benefits of the change
as early as February, the IRS said in a statement released Dec. 13.

Supplemental Wage Rate Changes

The supplemental wage withholding rate, which applies to nonregular “supplemental”
wages paid by an employer such as bonuses and commissions also are to change under
the bill.

The supplemental wage withholding rate for supplemental wages less than or equal to
$1 million, using the flat withholding method, would increase to 28 percent under
the bill. The rate is an increase from the current supplemental wage withholding flat
rate of 25 percent, in effect since 2007.

Supplemental wage payments in excess of $1 million during the 2018 taxable year would
be subject to a reduced rate of 37 percent under the bill, compared to the current
rate of 39.6 percent.

Removed Deductions

Effective from the 2018 taxable year through 2025, employee moving expenses paid or
incurred in connection with the commencement of work in the private sector would be
suspended. The suspension of the deduction for moving expenses would not apply to
taxable years beginning after December 31, 2025, unless the U.S. Congress chooses
to extend the suspension.

Corporate tax deductions would not be available for certain meal and entertainment
costs, subsidized qualified transportation fringe benefits, and certain other employee-related
costs.

International Payroll Tax Aspects

U.S. citizens and residents would continue to be subject to individual income tax
on their worldwide income under the bill.

Earnings of noncitizens who are lawfully admitted as permanent residents of the U.S.
and noncitizens who meet a substantial presence test and are not otherwise exempt
from U.S. taxation would also remain taxable as U.S. residents for individual income
tax purposes, the bill said.

The source of income for U.S. federal tax purposes of personal services remuneration
would generally continue to be the place-of performance.

Withholding agents that make payments of U.S.-source amounts to foreign workers would
continue to be required to report and pay any amounts of U.S. tax withheld, the bill
said. Withholding agents also would continue to be required to file a summary of the
total U.S.-source income paid and withholding tax withheld on foreign employees for
the year as well as a report to both the IRS and the foreign employee of that person’s
U.S.-source income that is subject to reporting.

Although the foreign tax credit currently applicable to corporate tax relief for intangible
income would considerably change under the bill, U.S. citizens and resident aliens
would continue to be allowed take a tax credit against their U.S. taxes on foreign
income in the amount of the foreign taxes actually paid to the foreign country on
foreign-source individual income.

The bill would go into effect once passed by the House and Senate and then signed
by President Trump.

To contact the reporter on this story: Anna Massoglia in Washington at To contact
the reporter on this story: Anna Massoglia at
amassoglia@bloombergtax.com

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